The media is full of warnings about El Niño, but EY global chief sustainability strategist Velislava Ivanova does not think that most companies have thought seriously about the impact of the weather phenomenon in the context of a changing climate. She believes part of the blame lies at the door of sustainability professionals, who have failed to be active enough in raising awareness and helping companies adapt their business models.
“El Niño” is the term used to describe the warming of sea surface temperature. It happens every few years and is typically concentrated in the central-east equatorial Pacific. El Niño events are associated with widespread changes in the climate system, such as rainfall, cyclones and increases in global average temperatures. This year is on course to experience the largest El Niño in living history.
Further, this extreme weather event is happening as the world warms and the effects of climate change are clear for all. On top of this summer’s heatwaves and drought came the catastrophic flash flood on the Nepal-Tibet border, which looks most likely to have been caused by glacial collapse.
Analysis finds that warming has caused ice loss from some Himalayan glaciers to double since 2000, increasing dangers such as flooding.
“El Niño is coming on top of climate change impacts,” Ivanova tells Sustainable Views. “Climate change will exacerbate El Niño’s impacts on business.” The weather event is also happening as companies face additional supply-chain challenges from geopolitics, notably the closure of the Strait of Hormuz.
Some companies are thinking in a systemic way, “looking at their existing modelling around climate change and really thinking about the effects of El Niño”, says Ivanova. They are analysing how concentrated their supply chains are and mapping them against El Niño impacts, and looking at how to diversify them “even if that is not happening quickly enough and should have happened a number of years ago”, she adds.
Likewise, businesses that have created closer connections between finance and sustainability departments will be better placed to manage the effects of climate change and El Niño, “but I don’t think it is sufficient”, she says. “There is a lot more work to be done.”
Ivanova lists a litany of impacts climate change and El Niño will have on businesses, including driving up commodity costs, interrupting and raising the cost of logistics and freight, and more expensive insurance. Too many companies are also failing to think about the social impacts of extreme weather on workers and productivity, she adds.
She suggests that people like herself are part of the problem. “Where are we as experts and technical people, who have the responsibility to help our businesses survive and thrive and transform?” she asks. “I don’t think sustainability professionals have been active enough in raising awareness and helping businesses model their impacts . . . or in educating boards and executive teams to deal with potential impacts.”
However, Ivanova pushes back against any suggestion that sustainability and the role of chief sustainability officers have diminished across the board as the world has cooled on sustainability. Some companies may have downgraded the CSO role, but others have made it more prominent, including turning it into a broader risk-management role, she says. “There is not a consistent trend.”
Resilience for competitiveness
Ursula Woodburn, director of the University of Cambridge’s Institute for Sustainability Leadership Europe office and the Corporate Leaders Group Europe, says: “Building climate resilience into investment decisions, infrastructure and supply chains is rapidly becoming a basic condition for competitiveness.
“This summer has shown that climate risk is already a business and economic risk in Europe,” she tells Sustainable Views. “El Niño may amplify some of these pressures globally and indirectly in Europe, but businesses should not be waiting for the next extreme event before acting.”
Policymakers also need to step up to the plate, she adds, warning “a lack of political clarity on climate mitigation and on Europe’s future resilience will worsen impacts for business and the economy”.
Humayon Pramanik, influence and advocacy director at the Association for Project Management, offers similar advice. “Politicians and business leaders who still regard climate change as a future risk must change their thinking immediately,” he tells Sustainable Views. “Sustainability must be elevated from a reputational to an operational imperative that is embedded in project scope, governance, budgets and decision-making.”
A survey by APM finds 96 per cent of project professionals in the UK say the recent heatwave affected their main project, with nearly a quarter postponed or paused. Around one in five respondents say they experienced reduced productivity, additional costs, revised or missed deadlines, supply-chain disruption, or had to increase health and safety measures.
Climate change and extreme weather also appear in the survey as the second most-cited potential cause of major UK project failure over the next five years. “Companies that don’t build resilience into project delivery risk undermining client confidence and, ultimately, making their projects and business unviable,” says Pramanik.
Growth and transformation
But it does not have to be all doom and gloom. “Sophisticated companies also look at the opportunities” related to a changing world, says Ivanova. Some forecasts suggest El Niño could boost crop yields in some parts of South America because of increased rainfall.
“Successful companies focus on growth and transformation,” she says. “How can they level some of these quick-changing environments for a growing business in response to consumer demand?”
To survive and thrive in the coming months, Ivanova advises companies to “look at the scenario modelling that they hopefully already have in place”, and to carry out stress-testing across their supply chains to determine where facilities and suppliers are located and potential impacts from climate change and El Niño.
Companies should also analyse the potential exposure of logistics corridors, ports and commodities, she says, with worker protection plans, insurance coverage and ways to integrate climate impacts into financial planning likewise on the to-do list.